The proposed Financial Transaction Tax could cause an earthquake in the European financial industry if adopted in its current form, according to Alain Dubois, chairman at ETF provider Lyxor Asset Management.
The European Commission published its proposals for a financial transaction tax in February this year and so far 11 EU member states have signed up.
Alain Dubois told IU.eu: “The financial transaction tax–as it is in the current EU Commission version–would have, if adopted as it is, an effect of tectonic proportions on the European financial industry. For example, most funds and most financial players that are based in the FTT zone would have no choice but to relocate outside the FTT zone. This is huge!”
The tax, to be implemented by year end , will see a tax on financial transactions in states that agree to the proposals.
The levy on the financial sector follows the 2008 crisis and is intended to cover costs of the economic meltdown and any future economic crashes. It also plans to stop financial institutions getting involved in overly risky activities.
Current proposals say that the FTT should be levied at 0.1 percent on trades in shares and bonds, and at 0.01 percent on derivatives trades.
Last October, the Netherlands announced that it would sign up to the FTT, becoming the 11th state to do so.
Eleven out of a possible 27 EU members now agree to support and adopt the FTT, with Britain and Sweden still opposing it. So far Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain have agreed to take part, with Estonia still considering the tax. Under so-called "enhanced co-operation", new policies can be pushed forward within the EU’s legal framework as long as at least nine member states sign up.
“The FTT will not bring any money to any treasury in the FTT zone. On the contrary it will massively destroy their taxable base and will cost them a lot,” said Dubois.
“For example, the French asset management industry employs approximately 80,000 employees. If half of those jobs disappear or relocate, the tax loss for the French treasury would obviously be much higher than the tax income coming from the FTT. Such tax income would be in any case much smaller than what has been published by the EU Commission, because most taxable transactions will have disappeared.
“This project has obviously not really been thought through properly yet. I am confident that its principles will not be adopted by the FTT member states,” said Dubois.
Other concerns are that the end investor will invariably be paying the tax.
The UK has not signed up to the tax but it currently applies a stamp duty tax to the buying of shares and trading, which is almost always paid by the end investor.